Why Sea Freight Rates Increasing in 2024?
Summary
TLDRIn 2024, global supply chain disruptions and geopolitical tensions have led to a surge in ocean freight rates. The Houthi attacks in the Red Sea, increased demand due to economic recovery, and port congestion are key factors driving up costs. Despite efforts to improve efficiency, container shortages and route changes have exacerbated the situation. The future of freight rates remains uncertain, with market conditions and geopolitical developments set to influence stability.
Takeaways
- 📈 Freight rates have been skyrocketing as of June 2024 due to a variety of factors.
- 📉 In 2023, freight rates from Shanghai to North America saw a significant drop, with the Shanghai Containerized Freight Index falling from an average of 3,410 points in 2022 to 1,6 points in February 2023.
- 🚢 Oversupply of ships, especially the introduction of ultra-large container ships, led to low freight rates for most of 2023.
- 🛑 Port congestion and supply chain disruptions from the COVID-19 pandemic were gradually resolved, leading to more efficient operations and stabilized rates.
- ⛔ Attacks by the Houthi armed group in Yemen forced ships to take a detour, increasing operating costs and contributing to higher freight rates.
- 🚦 The detour via the Cape of Good Hope increased fuel consumption and extended operating times, further driving up freight rates.
- 📦 Container shortages at major export ports, especially in Asia, were exacerbated by the detour and increased demand.
- 🌐 Port congestion, particularly in Singapore, has led to longer waiting times for ships and difficulties in cargo handling, affecting freight rates.
- 💹 Economic growth in Western countries and increased consumption have driven up demand and contributed to higher freight rates.
- 🇺🇸 The US Federal Reserve's actions on interest rates and the robust US economy are influencing the demand and cost of freight.
- 🔄 China's focus on exports to support economic growth and the implementation of export promotion measures are impacting the freight market.
- 🔍 The future of freight rates is uncertain due to a complex mix of geopolitical risks, supply and demand dynamics, and market conditions.
Q & A
What was the trend of containerized freight rates from Shanghai to North America in 2023?
-In 2023, the containerized freight rates from Shanghai to North America experienced a significant drop at the beginning of the year, with the Shanghai Containerized Freight Index falling to 1,600 points in February, down from an average of 3,410 points in 2022.
What caused the initial drop in freight rates in 2023?
-The initial drop in freight rates was due to low demand and oversupply, with an influx of new ships ordered during the COVID-19 pandemic leading to an oversupply, especially with the introduction of ultra-large container ships exceeding 20,000 TEU.
How did port congestion and supply chain disruptions affect freight rates in 2023?
-Port congestion and supply chain disruptions seen at the beginning of the pandemic were gradually resolved by 2023, with port operators and logistics companies implementing measures to improve efficiency, which led to shorter transport times and stabilized rates.
Why did freight rates begin to rise again towards the end of 2023?
-Freight rates began to rise again due to factors such as attacks on commercial vessels by the Houthi armed group in Yemen, which forced ships to take a detour via the Cape of Good Hope, increasing operating costs and time.
How did the attacks by the Houthi armed group impact global shipping?
-The attacks, which targeted Israeli commercial vessels or those connected to Israel, had widespread effects, making other commercial ships potential targets and forcing them to take a longer route via the Cape of Good Hope, increasing fuel consumption and operating time.
What economic factors contributed to the rise in freight rates in 2023?
-Economic growth in Western countries, particularly increased consumption in North America and Europe, along with over-ordering by companies fearing future supply shortages due to the COVID-19 pandemic, contributed to higher freight rates.
What measures did the Chinese government implement to support exports and maintain economic growth?
-The Chinese government implemented measures such as stabilizing the Yuan, providing tax incentives to export companies, and expanding export financing to maintain the competitiveness of Chinese products and expand their market share overseas.
How is China addressing trade frictions and geopolitical risks?
-China is turning these challenges into opportunities by strengthening exports to emerging markets and countries targeted by the Belt and Road initiative, aiming to diversify export markets and reduce dependence on traditional major markets.
What factors are expected to influence the stability of freight rates in the latter half of 2024?
-Factors such as the introduction of more new ships into the market, labor negotiations on the US East Coast, container shortages, and supply chain disruptions are expected to influence the stability of freight rates.
Why might ocean freight rates not decrease during the North American Christmas shopping season?
-High demand during the shopping season, coupled with potential disruptions from unresolved container shortages and supply chain issues, makes it uncertain whether ocean freight rates will decrease.
What advice does the video offer for companies dealing with the current surge in sea freight rates?
-The video suggests that companies need to continue implementing flexible measures to adapt to the unstable freight rate trends, which are heavily influenced by market conditions and geopolitical developments.
Outlines
📈 Skyrocketing Freight Rates in 2024: Causes and Impacts
This paragraph discusses the dramatic increase in container freight rates as of June 2024. It starts with a review of the freight trends in 2023, noting a significant drop in rates early in the year due to low demand and oversupply, exacerbated by the introduction of ultra-large container ships. The paragraph then explains how geopolitical tensions, specifically attacks by the Houthi armed group in Yemen, led to a detour for ships around the Cape of Good Hope, increasing fuel consumption and operating times, and consequently, freight rates. Additionally, it touches on the resolution of port congestion issues by 2023, the economic recovery in Western countries, and the over-ordering by companies fearing future supply shortages. The paragraph concludes by highlighting the role of Singapore as a major hub port and the resulting congestion and container shortages.
🌐 Geopolitical and Economic Factors Influencing Freight Rate Trends
The second paragraph delves into the unpredictability of the surge in sea freight rates, considering the complex factors at play. It mentions the expectation of a stabilization in the supply-demand balance by the latter half of 2024 with the introduction of new ships, but also warns of potential disruptions due to labor negotiations in the US. The paragraph underscores the lasting impact of geopolitical risks, such as the Houthi attacks in the Red Sea, which have affected routing and increased operational costs. It also considers the global economic growth driving demand, the space constraints in the shipping industry, and the upcoming North American Christmas shopping season's influence on demand. The paragraph concludes by emphasizing the need for companies to implement flexible measures in response to the unstable freight rate trends and the video's intent to support viewers in their logistic roles.
Mindmap
Keywords
💡Freight rates
💡Global supply chain
💡Shanghai Containerized Freight Index (SCFI)
💡Oversupply
💡Ultra-large container ships
💡Port congestion
💡Houthi armed group
💡Cape of Good Hope
💡Container shortages
💡Economic growth
💡US Federal Reserve
💡Peak seasons
💡Belt and Road Initiative
Highlights
C Freight rates are soaring due to various factors impacting the global supply chain.
In 2023, Shanghai to North America freight rates saw a significant drop, with the Shanghai Containerized Freight Index falling to 1,6 points in February from an average of 3,410 points in 2022.
Low demand and oversupply kept rates depressed throughout 2023, influenced by the influx of new ships ordered during the COVID-19 pandemic.
Introduction of ultra-large container ships over 20,000 TEU exacerbated oversupply on major Asia-Europe and Asia-North America routes.
Shipping companies lowered freight rates, leading to a decrease in overall market rates due to oversupply.
Port congestion and supply chain disruptions from the early pandemic were gradually resolved by 2023, improving efficiency and reducing congestion.
Towards the end of 2023, freight rates began to rise again due to attacks on commercial vessels by the Houthi armed group in Yemen.
The Houthi attacks forced ships to take a detour via the Cape of Good Hope, increasing operating distance, fuel consumption, and costs.
The detour reduced the turnover rate of containers, exacerbating container shortages at major export ports in Asia, especially for exports from China.
Port congestion contributed to rising sea freight rates, with many ports struggling to cope with the surge in transport volume.
Singapore, as a major hub port in Asia, is experiencing strained port facilities and workforce, causing congestion and worsening container shortages.
Economic growth in Western countries, particularly increased consumption in North America and Europe, is driving higher freight rates.
Companies over-ordered in fear of future supply shortages, contributing to the surge in export demand and higher freight rates.
The US Federal Reserve is considering cutting interest rates to curb inflation, but the economy remains strong with robust demand.
China is implementing export promotion measures to maintain economic growth amidst domestic demand slump and trade frictions with the US.
China is strengthening exports to emerging markets and countries targeted by the Belt and Road initiative to diversify export markets.
The surge in sea freight rates is expected to last due to complex factors, with predictions of stabilization in the latter half of 2024.
Geopolitical risks, route changes, increased global demand, rising operational costs, and space constraints are key factors driving up freight rates.
The current surge in sea freight rates is a result of supply chain disruptions influenced by various factors, including the Houthi attacks in the Red Sea.
Companies need to continue implementing flexible measures as stabilizing freight rates will take time and be influenced by market conditions and geopolitical developments.
Transcripts
[Music]
hello this is eno as of June 2024 C
Freight rates are skyrocketing many
people involved in the global supply
chain must be feeling the impact today
I'd like to explain why C Freight rates
are soaring at the moment first let's
look back at the freight trends of 20123
the SE Freight rates from Shanghai to
North America in 2023 experienced a
significant drop at the beginning of the
year specifically scfi the Shanghai
containerized Freight index fell to 1,6
points at the beginning of February 2023
a sharp decline from the average of
3,410 points in
2022 during this period the freight rate
per 40ft container also dropped from
$10,400 in September 2021 to
$230 afterwards continued low demand and
oversupply kept rates depressed for most
of 2023 the freight rates remained at
low
levels this was due to the continuous
influx of new ships ordered during the
co9 pandemic leading to an oversupply
the introduction of ultra-large
container ships exceeding 20,000 teu
aggravated over Supply on major routes
between Asia Europe and Asia North
America as a result shipping companies
were forced to lower SE Freight rates
decreasing overall Market
rates additionally the Port congestion
and supply chain disruptions seen at the
beginning of the pandemic were gradually
resolved by 2023 Port operators and
logistics companies implemented various
measures to improve efficiency and
reduced congestion this led to Shorter
transport times and stabilized
rates however towards the end of 2023
Freight rates began to rise again one of
the causes was the attacks on Commercial
vessels by the houti armed group in
Yemen this forced ships to avoid the Red
Sea and take a detour via the Cape of
Good Hope in South Africa the houthis
linked to the Israel Palestine conflict
targeted countries supporting Israel and
their economic activities although these
attacks directly targeted Israeli
commercial vessels or those connected to
Israel they had widespread effects
making other commercial ships targets as
well with ships taking the detour via
the Cape of Good Hope the operating
distance increased significantly this
resulted in higher fuel consumption and
extended operating time by over 2 weeks
consequently operating costs Rose
leading to higher ocean Freight rates
furthermore The Detour reduced the
turnover rate of containers exacerbating
container shortages at major export
ports in Asia especially for exports
from China container shortages have been
reported further driving up Freight
rates Port congestion has also
contributed to rising sea Freight rates
many ports are struggling to cope with
the surge in transport volume straining
their infrastructure
this leads to longer waiting times for
ships and difficulties in efficient
cargo handling dot Singapore in
particular plays a crucial role as a
major Hub port in Asia it handles a
large volume of trans shipment cargo
connecting interasian and Asia Western
trade routes in Singapore this has
resulted in strained Port facilities and
Workforce causing congestion over 130
ships are experiencing offshore waiting
times of 2 to 4 days worsening the
container shortage
let's also consider the economic aspects
since 2023 economic growth in Western
countries has been recovering
particularly with increased consumption
in North America and Europe furthermore
in addition to a surge in export demand
many companies that had been concerned
about their supply chains in the wake of
the covid-19 pandemic over ordered in
fear of future supply shortages which
also contributed to higher Freight rates
the US Federal Reserve is looking for
the right time to cut interest rates to
curb inflation pressures but the US
economy remains strong and demand is
robust typically July August and
September are considered Peak seasons
for North American Transport and high
transport demand is expected to continue
until early October before China's
national day next let's turn to China
amidst the slump in domestic demand in
China exports are a vital means to
support economic growth especially with
sluggish domestic consumption exports
are essential to absorb the over
production capacity of manufacturing
Industries the Chinese government is
implementing various export promotion
measures to maintain economic growth
these include stabilizing the Yuan
providing tax incentives to export
companies and expanding export financing
this aims to maintain the
competitiveness of Chinese products and
expand their market share
overseas however China faces trade
frictions with the Us and other
geopolitical risks it is turning these
challenges into opportun unities by
strengthening exports to emerging
markets and countries targeted by the
belt and Road initiative this strategy
seeks to diversify export markets and
reduce dependence on traditional major
markets so how long will this surge in
see Freight rates last it's hard to say
due to the complex interplay of various
factors some predict that the supply
demand balance will stabilize in the
latter half of 2024 as more new ships
are introduced into the
market however labor negoti ation are
scheduled on the US East Coast in
October 2024 although not as severe as
on the west coast terminal disruptions
are
expected once container shortages and
supply chain disruptions occur they do
not resolve quickly it takes at least
several months and meanwhile the North
American Christmas shopping season will
arrive making it uncertain whether ocean
Freight rates will decrease in response
to high
demand how was this explanation as I
have explained in 2024 factors such as
geopolitical risks leading to route
changes increased demand due to global
economic growth Rising operational costs
and space constraints are driving up
Freight rates especially the attacks on
Commercial vessels in the Red Sea by the
houthis stemming from the Israel
Palestine conflict are a significant
factor considering these factors
comprehensively C Freight rate trends
remain unstable and future rates will
likely be heavily influenced by market
conditions and geopolitical developments
it is expected that stabilizing Freight
rates will take time and companies need
to continue implementing flexible
measures the current surge in SE Freight
rates due to supply chain disruptions is
caused by these factors if you need to
explain why ocean rates are rising for
your work please share this video the
animation makes it easy to understand
that's all for this issue thank you very
much in this channel I explain about
International logistic knowledge for
your better understanding I hope this
video will be a good support for your
logistic job if you have any shipment
from Thailand or to Thailand please feel
free to contact with me Emos anytime
also I'm very motivated to keep updating
this videos If you subscribe press good
or qu anything well thank you see you
next time
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